Thanks Exaccnt, and Mike. Couple more questions, re: MSFT ESOP's:
The gain to the employee is taxable to the
employee, but MSFT receives a credit(reduction) to its tax
liability. This credit lowers MSFT's cash usage, hence, it
contributes to the cost of buying Treasury stock through its
repurchase program.
What is the rationale behind the tax credit? I don't get it,
if there is no offsetting expense, at some later time. And
what if the stock heads back down, after the exercise? Do they have to "give back" the tax credit?
Another question: Does the income from stock exercise, paid in by the employee appear as part of reported earnings? Or is this simply a balance sheet item that adds to cash?
Stock options are widely used by corporate America. The benefits
to the company are primarily used to keep a lid on compensation costs and to entice future employees. The danger, however, is that it creates a huge future liability.
And the risks aren't often fully disclosed. Cisco, for example appears not to report the number of outstanding employee options, the status of a buyback program (if it exists), and it is reasonable to assume that CSCO has an aggressive employee option program. |
